Sales numbers are confirming fears that commercial vehicles are reversing the growth trends that began post-2016, and the headwinds in the economy are finally explaining it. When truck sales started declining in the first half of the fiscal year, both exports and imports were up. Not anymore. In 8MFY19, trade deficit is down by 11 percent year on year, exports only up by 2 percent while in Feb-18, imports are hitting their 29-month low. Cross-border with India and Afghanistan has cooled down. Trucks sales are now down a massive 27 percent in 8M, pickups by 12 percent while CBU imports of trucks and buses have fallen by 29 percent in rupee terms (down 42% in dollar value).
Greater economic activity overall, bolstered by trade, is a trigger for commercial vehicles (CV) sales, especially in the past few years when new heavy and light CVs are being favored over old/used ones. While trade is evidently on a steep decline, another measure are petroleum product sales which have plunged by 27 percent year on year in 8MFY19 led by furnace oil decline of 60 percent and high speed diesel decline of 20 percent.
So whatever happened to all that CPEC over-optimism? Looks like it is officially on a break- at least for now (read more: “The anti-boom”, Mar 13, 2019). Fitch Solutions have forecasted a drop of 18 percent in heavy commercial vehicles sales in the upcoming year as Chinese investment decline (in 7M down 28%).
But reconcile that with this: over the past two or so years, several commercial vehicle ventures have announced investment plans in Pakistan vying for that elusive CPEC demand, or what they anticipate will happen once CPEC is here. Some of these vehicles are meant to be high strength and tenacious, fit for longer routes, offering more sophisticated logistics solutions, rather than merely to transport goods from one place to another. Renault’s Ghandhara venture and Changan’s partnership with Master Motors to assemble Italian trucks comes to mind. Meanwhile others like JW Forland’s are making cargo and dump trucks. Then there are those in the grapevine like Volkswagon or Mercedes-Benz trucks, the latter of whom have signed a MoU with the National Logistic Cell (NLC).
These plans are legitimate and long term so did investors bet the wrong horse? Logistics players claim that transportation demand under CPEC is real. In one interview with BR Research, Chairman of Megamovers said that least 25,000 additional commercial vehicles are needed (based on only 75% of the total value of CPEC related goods movement), expecting 55,000 containers to flow back and forth between China and Gwadar once Gwadar Port becomes operational.
He believes the existing vehicles of the same quality in the market are only 4000 (read his interview here: Feb 4, 2019). But based on Ministry of Communication numbers, there are over 280,000 trucks on the roads of Pakistan. By that estimate, only 1 percent of the current fleet is acceptable. It is clear that the existing fleets will need to be overhauled, modernized and standardized for them to be able to cater to the demand. But until fleet managers, freight forwarders and logistic companies are ready to do that, sales will remain restrained.
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